How to Make Money Investing in the Stock Market

Dale Gillham, Chief Analyst and Head Trainer of Wealth Within

By Dale Gillham |

The majority of those who are successful in investing in the stock market will tell you that you need a plan and a good mentor if you want to be consistently profitable. There is good reason for this because both will ensure you stay on track to achieve your financial goals.

While most of us want the ability to successfully manage our investments, so we can have the lifestyle we desire, the unfortunate reality is that many never quite seem to achieve this. Usually, this is because many treat investing in the stock market like punting at the races.

A reality check on investing in the stock market

It is common for those investing in the stock market to haphazardly buy and sell stocks in the hope of profiting. Many also venture into highly leveraged markets after attending a few weekend workshops. So many are attracted to the supposedly high returns you can make in these markets, that they forget or ignore the inherent risks, which one of our clients experienced before she completed one of our trading courses.

road sign with the words money making opportunities straight ahead investing in the stock market

Unfortunately, Erica had thrown caution to the wind believing she was invincible after gaining a basic education in trading. And like many before her, she thought how hard can trading really be? Well, she found out the hard way because she crashed and burned big time and with a bruised ego decided that she needed to apply a tourniquet to her life savings so as not to lose everything. In fact, her husband asked her to give up trading altogether.

But Erica had never failed at anything in her life and she realised that if she was going to succeed at investing in the stock market and make money consistently she needed to invest in a proper education. The good news is that her investment in the Diploma of Share Trading and Investment (Course Code 10943NAT - now the Share Trading and Investment Course) paid off handsomely because what began as a hobby has today turned into a full-fledged trading career that provides a lifestyle most only dream of.

While you can read the full account of Erica’s journey on our website, I wanted to bring her story to your attention as I have witnessed so many people unknowingly choose the wrong path and consequently lose tens of thousands of dollars and in some cases their life savings when investing in the stock market. My intention is stop you from losing your hard-earned cash and to guide you in a direction that will ensure you know how to profit consistently from the stock market.

Getting the right education is the first step to achieving your financial goals much sooner than you otherwise would. While the rewards in the stock market can be high, with some of our traders earning thousands of dollars a week while others are making tens of thousands a month, in a high-stakes game, the losses can be equally big without the right knowledge.

How to make money consistently investing in the stock market

The solution to creating wealth is to do what wealthy people do, which means having a simple plan or a set of guiding principles so as not to make investing in the stock market overly complex. I always encourage our students to apply the KISS principle because these four letters have a very important place when it comes to learning how to trade stocks successfully. Some of you may be thinking of the saying keep-it-simple-stupid, however, my version of this four-letter acronym is to keep-it-simple-smart. Let me explain.

The most successful traders I know and what I teach in our trading courses is to keep everything simple. Those with the simplest trading plans who know how to manage their risk will inevitably be far more profitable because a plan takes the emotion out of trading. Indeed, following a simple but profitable trading strategy and working with a trading mentor is the smartest thing you can do and the quickest way to grow your wealth.

Mistakenly, far too many people still think that becoming profitable is a position reserved only for Wall Street geniuses. Why is this? I believe it’s largely due to the financial industry which has been promoted for decades that retail investors will be more profitable under their seemingly professional watch. However, the Global Financial Crisis (GFC) made many people wise to the fact that this is simply not the case. Let me show you why.

How to accelerate your wealth

In my bestselling book, How to Beat the Managed Funds by 20%, I took the simplicity of what I teach to the ridiculous by demonstrating how you could do far better than the average institutional fund manager by investing directly in the top 20 stocks in the Australian market. Using these stocks I constructed two portfolios of 10 stocks each and calculated the returns over 8 years from 31 January 1997 to 30 January 2005 applying a simple buy and hold strategy.

I listed the companies in alphabetical order based on their stock code and numbered them from 1 to 20. I then grouped all the odd-numbered companies to form one portfolio and all of the even-numbered companies to form another portfolio.

The results took into account all of the corporate actions that occurred during the period and the income from dividends. It may surprise you to know that Portfolio 1 achieved a rolling return of 156.69 per cent or an average annual return of 19.57 per cent while Portfolio 2 achieved a rolling return of 162.21 per cent or an average annual return of 20.28 per cent.

I demonstrated this concept again by actively trading a portfolio of the top 20 shares on the Australian market in my latest award-winning book, Accelerate Your Wealth, It’s Your Money, Your Choice’, over a 10-year period from 2 January 2007 to 31 December 2016, which took into account the GFC. The gain achieved from capital growth and dividends during this period (taking into account all corporate actions) equated to 225.82 per cent or an average annual return of 22.58 per cent.

You can see how attractive these returns are but imagine what you could achieve if you really gained the proper knowledge to invest in the stock market.

As you know, no one cares about your wealth more than you do, which is why I encourage you to take a step in the right direction by implementing the following guidelines right now.

10 guiding principles to make money in the stock market

  1. Educate yourself: any are willing to spend years studying to gain a formal education with the expectation that they will obtain a job. Yet when it comes to educating themselves about creating wealth, they never quite find the time.
  2. Don't over-diversify: aim to hold between 8 and 12 stocks in your share portfolio as this reduces your risk and increases your returns.
  3. Most importantly, learn how to set a stop loss to protect your capital in the event a stock falls in value. I always recommend 10 to 15 per cent below your buy price, depending on the volatility of the stock or 15 per cent below the most recent high price.
  4. Don't take tips from others because they are often less educated than you are – instead do your own research.
  5. Making profits investing in the stock market is not about how much money you make on any one investment, it is how much you do not lose over time. So it’s important that you learn when to sell stocks because this rule alone can make you very wealthy.
  6. Do what the rich do and don't follow the herd. The statistics have proven time and time again that the uneducated move their money into the market just before the peak and sell out after a crash. It is for this reason that I encourage people to remember, Warren Buffet's quote: “Be fearful when others are greedy and greedy when others are fearful.”
  7. If you are serious about investing in the stock market to make money for your retirement or lifestyle, don't make investing a hobby, invest in yourself and make it your business.
  8. Avoid buying investments just for income. In other words, don't be lured into buying a stock just because it pays a high dividend - this doesn't make it a safe investment (usually because the stock has fallen to such an extent) and is often used to attract mum and dad investors who don't understand that it is pointless receiving income if the risk to your capital is too high.
  9. Don't be a gold digger looking to invest in small-cap stocks or cheap stocks, remember the tech wreck. Buy only quality stocks in the top 100 shares on the market. Cheap stocks may look attractive but they are often wolves in sheep's clothing.
  10. Don't buy and hold over the long term – it is far more profitable to time the market than it is to spend time in the market. Remember, the research I conducted in writing both my books proves that anyone can achieve good returns with the right knowledge and patience. Buy and hold will only lead to average returns while learning when to buy and sell will yield far better returns and lessen your risk.

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